- EUR/USD rose to fresh multi-year peaks north of the 1.1700 barrier.
- The US Dollar dropped to levels last seen in March 2022.
- Doubts over the Fed’s independence weighed on the Greenback.
The Euro (EUR) extended its rally against the US Dollar (USD) for a sixth consecutive session on Thursday, pushing EUR/USD to new YTD highs near 1.1750 as traders weighed easing Middle East tensions and renewed fears over the Federal Reserve’s (Fed) independence.
Regarding the latter, President Trump escalated his public spat with Chair Jerome Powell by calling him “terrible” and indicating that he has several candidates lined up to succeed Powell; investors fear that these actions could jeopardise the Fed’s independence in decision-making and lead to more aggressive rate cuts.
Geopolitical relief fuels risk appetite
Optimism over a newly brokered ceasefire in the Middle East—negotiated under President Trump’s auspices—helped revive investor risk-taking in the past couple of days, supporting demand for the single currency and the broader risk-associated space in general.
While the truce remains delicate, it has been sufficient to draw capital back into higher-beta assets and bolster the strong upside bias in the pair.
Trade watch
With the July 8 deadline looming for the US tariff pause, markets remained alert to developments in Washington.
Simultaneously, the European Union (EU) continued its trade talks, particularly with the UK, although progress has been slow.
Fed-ECB divergence remains in place
At its June meeting, the Fed held rates at 4.25–4.50%, yet lifted its unemployment and inflation forecasts to account for tariff pressures. The dot-plot median still signals 50 basis points of easing by year-end, though individual forecasts range from no cuts to cumulative reductions of 75 basis points.
In his latest testimonies to Congress, Jerome Powell warned that higher tariffs could feed into US inflation this summer, tempering expectations of imminent rate relief.
This side of the Atlantic, the ECB trimmed its Deposit Facility Rate to 2.00% earlier this month. President Christine Lagarde emphasised that further easing will depend on a pronounced decline in external conditions.
Technical view
Next on the upside for EUR/USD sits the 2025 peak of 1.1744 (June 26), ahead of the September 2018 high at 1.1815 (September 24) and the June 2018 ceiling at 1.1852 (June 14).
Interim support, on the other hand, is seen at the 55-day simple moving average (SMA) at 1.1379, prior to the weekly trough of 1.1210 (May 29) and the May floor of 1.1064 (May 12), all ahead of the psychological 1.1000 mark.
Momentum indicators favour the Euro, although they open the door to a technical correction in the short term: The Relative Strength Index (RSI) rose past the 71 level, which indicates that it has entered the overbought zone, while the Average Directional Index (ADX) exceeding 25 suggests a strengthening trend.
EUR/USD daily chart
